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Monthly Archives: October 2016

Emerging from the doldrums

The pace of US growth recovered sharply in the third quarter, peaking at its highest rate in two years and lending credence to forecasts that the country is on track for greater economic stability as 2016 draws to a close.

The economy expanded at a 2.9 percent annualised rate in the third quarter, up from 1.4 percent in the second quarter, which topped predictions of a more modest rate of 2.6 percent and reflected a spike in exports as well as an increase in federal spending, according to the US Commerce Department.

That said, consumption growth – another key indicator of the health of the economy – dropped back over the same period to just 2.1 percent, down from more than double that figure in the previous quarter, and falling a long way short of the expected 2.6 percent benchmark.

Post-Brexit blues

When Britons voted narrowly to exit the European Union in a public referendum earlier this year, they may not have envisaged the ensuing shock to the country’s currency and financial reputation.

But now, with sterling languishing at its lowest value in 40 years and the UK stripped of its Triple-A credit rating, the country is also facing the possible loss of its reserve currency status, should it fail to secure continued access to the European single market.

US ratings agency Standard & Poor has admitted that the British government is risking significant damage to the economy’s growth, with potentially long-term implications for the country’s debt and credit profile. S&P fears that if the UK loses access to the single market, its businesses will suffer incalculable consequences for the foreseeable future.

Employed or self-employed?

In a decision that could have significant implications for thousands of employers and workers in the so-called ‘gig economy’ in the UK, Uber drivers have won the right to be paid the national living wage.

The case, brought by two workers leaves the ride-hailing company open to claims from some 40,000 drivers in the UK and could further pressure other companies to review the way staff are contracted and paid.

Uber had argued it was essentially a tech company, and that its drivers were self-employed contractors able to choose when and where to work. In turn, this gave the company a free pass on workers’ rights, including the obligation to pay a national living wage and other perks such as holiday and sick pay.

The Brexit dilemma

More than three months have now passed since the British public voted to leave the European Union but there’s been no clear indication so far of how – or when – the British government intends to effect the political and economic split. In order for the process of Brexit to begin, Article 50 of the Lisbon Treaty must be invoked but because that will set the clock ticking on a strict two-year timetable for negotiations, no-one seems in much of a hurry to push the button.

There’s much that is still unclear – and it’s this uncertainty that’s vexing not only the British public but also the businesses that have a lot riding on whether or not Brexit will allow them to continue to have access to the single market. Britain sells almost half of its exports via the common market, and any change to this process is likely to be expensive.

A ‘soft’ Brexit would minimise the economic impact on the UK but is likely to come at the expense of limiting the number of migrants – an area of concern for many who voted to leave the EU. On the other hand, the ‘hard’ Brexit favoured by some leading Conservative eurosceptics could have disastrous consequences for businesses, most notably for the City of London.

Passporting rights are at stake

The head of Germany’s central bank recently warned that London’s position as a financial centre would come into question if the UK left the single market. In this scenario, it’s likely that banks would automatically be stripped of their ability to conduct business across the EU, which would open the door for other European financial capitals to annexe business from London.

In an interview with the Guardian, Bundesbank president Jens Weidmann pointed out that banks’ passporting arrangements are ‘tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area’ (EEA).

Passporting rights allow firms to use London as a hub for serving clients from across the EU, without having to negotiate licences in separate countries. Because of this, international banks with affiliates in the UK actually account for a large share of international banking activity in London. Bullish Brexiters like Foreign Secretary Boris Johnson have reassured banks that the UK will retain passporting rights even if it leaves the EEA, but Weidmann negative this assumption, saying that business would reconsider relocating their headquarters.

UK-based businesses feeling the pressure

According to a survey of 100 business leaders from large companies by accountancy firm KPMG, more than three-quarters of chief executive officers are considering moving either their headquarters or some part of their operations outside of Britain following the referendum. The CBI and PricewaterhouseCoopers have also reported a deterioration of confidence in the financial services sector in the three months to September.

The surveys suggest Prime Minister Theresa May faces a challenge to retain businesses and jobs when Brexit negotiations finally get underway, and that talk of a hard Brexit is already causing companies to consider – or even accelerate – their own exit strategies.

Unfair advantage

Tech giant Apple has been hit with Europe’s biggest-ever tax penalty after Brussels ruled that the company had received what amounted to illegal state aid from Ireland. The company will be required to pay billions of euro in back taxes as the European Commission seeks to redress the aggressive tax avoidance strategies employed by the world’s biggest corporations.

The judgment follows a three-year investigation into claims that Dublin violated EU law by granting Apple an advantage not available to other companies. It’s likely that the decision will be the subject of appeals by both Apple and Ireland – both of which deny any wrongdoing.

Free trade not without cost

Is the concept of free trade outmoded? Well, the International Monetary Fund (IMF) has warned that free trade is being seen, increasingly, as a tool that benefits the affluent, cautioning that help is needed for people whose job prospects have been damaged by globalisation so that a fresh case can be made for removing the barriers to international commerce.

In advance of its annual meeting in October, the IMF released a statement from the half-yearly World Economic Outlook study, in which it spotlights weaknesses in the global economy as being largely responsible for the stalling of trade growth over the past few years.

It also acknowledged that protectionist measures in the wake of the financial crisis had ‘not been innocuous’ and advised that anti-trade feelings could harden further, given the current climate.